It may seem counterintuitive to think that demand would increase at the same time that rates are inching back up again. But once we look at the data, and we match that with our borrower’s sentiment, goals and personal aspirations…it makes sense. And what about that generation that’s hunkered down and aging in place?…Is this normal, abnormal, and is it a fad or the new trend among retirees and soon to be retired?
If you told us in 2023 that we would see the return of buyer bidding wars, the number of homes experiencing price drops would be in decline, and that serious mortgage delinquencies lowest since 1999….we probably would have laughed. But here we are at the end of January and this is REALLY happening in the market. While we can’t ignore the other signs that could spell trouble in the months and quarters ahead, it’s work making a pitstop on these results to ask ourselves – WHAT THE HECK IS ACTUALLY GOING ON IN THE REAL ESTATE MARKET!?!
As we declared in 2023, we are going to see some very creative solutions come to the market as we confront the highest interest rates in 22 years, lowest affordability in more than 40 years, and home prices not giving up! A few school districts are testing a new model that could help provide housing to teachers, but will it work? And is it a model for the future of housing educators? If this model is successful, can the same strategy be applied to other industries?
Overall the housing market ended the year much stronger than most people were expecting, and we also discuss what makes Gen Z a different kind of homebuyer. Spoiler alert, some of what they care about most isn’t what you’d think!
You probably didn’t hear that refinance applications went on an absolute tear last week did you? Well, they did. Applications to refinance a home loan jumped 19% from the previous week and were 30% higher than the same week one year ago. Yup, 30% higher than the same week in 2023…and that’s not even when rates hit their peak in 2023. To me this suggests 2 things: 1) That people have warmed up to the market rates being the market rates so if you wanna access home equity you’re gonna have to take the rate that’s offered; and 2) Homeowners are likely refinancing because the HAVE too, not because they WANT to. Whether it’s cash out to pay off debt, build an ADU, or finance some other ambition…refinances are here!
And next lets talk about home prices. Sorry internet trolls, but home prices are already on the rise as we can see from the 2023 year end data. Fueled by that darn decline in mortgage rates, national home prices ROSE 5.2% during the month of November. Clearly demand for housing is there, and even if you wanna make the argument about inventory keeping prices high, you still have to have an answer for why buyer behavior has them willing to pay more than they might have just a few months prior. Yes, math and the ability to even qualify plays a part here, but what we’re really seeing is EXACTLY WHAT WE WERE TALKING ABOUT – If the Fed is actually finished raising rates, and signals cuts in 2024 then mortgage market see rates would start declining, buyers will come off the fence and that demand will keep prices high, or push them even higher.
And speaking of home prices, lets talk about the percentage of homes sold that have price cuts as part of their story. If you didn’t know a “normal” range for percentage of listings that experience a price cut is 30-35%. So 2023’s 36.5% of homes experiencing a price cut isn’t all that bad even though it falls just outside the range of normal. But we have to remember, this includes all that time when mortgage rates were their highest in 22 year and prices STILL didn’t make this reading rocket into outer space. So what’s that mean for 2024?….Less homes experiencing price cuts. With mortgage rates easing up, and inventory thawing out, the demand still exceeds the supply and the projected percentage of homes to experience a rate cut this year is only 32%. That’s a lot of margin for error in case that turns out to be wrong, and still within the rage of what we traditionally consider “Normal”.
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So with that, let’s take a quick look at what’s coming up in the markets this week.
Monday the markets will be closed.
Tuesday we get the Empire State Manufacturing index
Wednesday we get Core retail sales and retail sales month over month, and more importantly we get the national association of home builders market index and THIS is probably gonna look pretty good!
Thursday we will get unemployment claims, Philly Manufacturing index, building permits and Housing starts. This is definitely the most data packed day of the week.
And Friday we have Preliminary Consumer Sentiment, Existing home sales and Inflation expectations.
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2024 is already off to a strong start for housing and real estate. Mortgage Rates calmed down from their furious 2023 and the Fed is set to make numerous rate cuts throughout the year. Also, a new solution has arisen in an attempt to close the gap between teachers averages wage and local housing costs of some well known municipalities. We’re only 1 week in and momentum is already here!
A new report came out the first week of January talking about the disparity between the average teachers’ pay and their ability to afford housing payments based on municipal home price averages. The conclusion…the average teacher wage falls WAY short of what’s needed to afford the average priced home in most of the nations top 100 cities. Of course, we also have to remember dual income where that’s present, but as the report asks: “How can we attract more teachers to areas where the housing is well beyond their monthly income and the rent might be too?” One school districts solution was to become a landlord themselves and we will have to see if others follow suit. Do you think this could be the way forward?
Also last week the November pending sales was released. Pending home sales in November were unchanged compared with October and 5.2% lower than November of last year, according to the National Association of Realtors. Remember, this is about number of homes sold – NOT PRICE OF HOMES SOLD. Mortgage Rates peaking near 8% in October and typical holiday lull are being blamed for the lack of increase in sales, but it also signals that we most likely really hit rock bottom for number of units sold during this current economic cycle. With mortgage rates sharply lower then they were in the fall of 2023, we’re likely to see pending home sales make a strong resurgence in the weeks and months to come.
And let’s take a moment to talk about how the housing market finished up 2023. For the final week of the year, Inventory ended up higher than it was for the final week of the previous year. There were more homes under contract than the previous year, there were no statistically significant price reductions to cause alarm that the bottom is about to fall out of home prices., and interest rates settled in WELL below where they were during the fall and ironically looked mostly similar to how they did to end 2022. All this adds up to a pretty confident looking housing market to kick off 2024 and WE’RE HERE FOR IT!
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So with that, let’s take a quick look at what’s coming up in the markets this week. Several Fed members will be speaking this week, but since we got last weeks Fed meeting minutes released, I’m not expecting to hear much deviation from what we’ve come to learn about their plans for 2024…which is in short: numerous rate cuts and a buncha of arguments about when they will start and how many they will do.
Monday Tuesday and Wednesday are pretty light days in the market, and no notable news will released.
Thursday we will get a lot of CPI data: Core CPI Month over month, CPI month over month, CPI year over year and unemployment claims
Friday we will hear Core PPI month over month and PPI month over month
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Thanks again for tuning in to Monday Mortgage Minute.
Remember to like, subscribe and turn on notifications so you see this show right when it posts each week.
Share this video with someone you care about so they can WIN in mortgage and real estate in 2023.
We’ll see you again next week!